November 2017 Independent Contractor Misclassification and Compliance News Update

This past month’s legal developments in the area of independent contractor misclassification and compliance was notable for some non-class action cases: one where two office workers in New York, who were found by a jury to have been misclassified as independent contractors, were each awarded substantial sums (one over $100,000) against a water-filtration company; and the second where two limo drivers in Alabama together received over $20,000 in a settlement approved by the court.

While the total liability in both of those cases was rather affordable for most companies, the amount recovered by each plaintiff was far more than plaintiffs receive in most class actions.  These cases illustrate why companies who classify even a few workers as ICs run a risk that they will be subject not only to the costs of defending these types of cases, but also to considerable monetary damages in the tens or hundreds of thousands of dollars per worker – unless such businesses take steps to enhance their IC compliance.  Some companies have resorted to the use of a process such as IC Diagnostics™ to maximize their compliance with IC laws and minimize the likelihood that they will be subjected to IC misclassification lawsuits or, if sued, will increase the likelihood that they will prevail in court.

The first of the two cases was tried to a jury verdict. Of particular interest was the court’s conclusion that the workers’ federal tax returns, where they reported to the IRS that they were self-employed, were found to be non-dispositive of their legal status in their IC misclassification case. Of particular interest in the second case was the court’s refusal to allow the parties to settle the case on a confidential basis.  Instead, the court unsealed the terms of the settlement agreement because of what the court viewed as a strong public interest supporting the full disclosure of settlements in this type of legal proceeding.

The other two court cases involve a $1.5 million settlement by moving company drivers against a well-known van line and a new lawsuit filed against a preeminent company in the oil and gas industry.

In the Courts (4 cases)

JURY VERDICT OF OVER A QUARTER OF A MILLION DOLLARS TO TWO OFFICE WORKERS MISCLASSIFIED AS IC’S IS UPHELD BY NEW YORK FEDERAL COURT. A New York federal court upheld a jury’s verdict that Aqualife, a company selling and servicing water filtration systems to the Russian-speaking community in New York City, violated the FLSA and the New York Labor Law as a result of the company’s misclassification of two office workers as independent contractors. The workers were awarded $106,431 and $67,126, respectively, in unpaid overtime and other compensation for office/clerical and sales-related work they performed for the company, plus legal fees. The court found that “the jury could reasonably have concluded that the defendants controlled the schedule, hours, pay, place of work, and tasks of the plaintiffs.”  Specifically, the court noted that there was evidence presented to the jury that both workers were “bound by the decisions of management”; they worked set hours each day; were paid on an hourly basis; clocked in and out; although they were allegedly promised commissions, such commissions were never or only sparingly paid, eliminating any prospect for individual economic success; some skill was involved in booking appointments, but it did not give rise to economic independence and did not require advanced training; and their business activities were strictly controlled by the company. Although the workers designated themselves as independent contractors on their tax returns, that factor alone was not dispositive.  Leevson v. Aqualife USA, Inc., No. 14-CV-6905 (E.D.N.Y. Nov. 1, 2017).

TWO ALABAMA LIMO DRIVERS SUCCEED IN IC MISCLASSIFICATION LAWSUIT.  An Alabama federal court has approved a settlement in an FLSA overtime and retaliation lawsuit brought by two drivers against limousine/sedan service, Over the Mountain Sedan, LLC, and its owner, claiming the company misclassified them as ICs. The amended complaint alleged that the owner determined the drivers’ passenger routes, times to pick up customers, and the fares that customers paid for services; the company required the drivers to report by 4 AM each morning; in the event the drivers did not have an assigned customer or route, the drivers were required to remain at the company premises from 4 AM until 2 PM each day, and if no reservations or bookings were necessary after 2 PM, the drivers had to remain on company premises and be available to work; the vehicles were owned by the company and not the drivers; the drivers could not reasonably work for the company and other transportation companies simultaneously; and the drivers could not refuse engagements. The approved settlement totaled $21,600.  It provides that each of the two drivers will receive $350 per month for 18 months (a total of $6,300 per driver) and the drivers’ counsel will receive $9,000 in attorneys’ fees and costs. The court rejected a confidentiality clause that was proposed in the settlement, finding that neither party offered a compelling reason for its inclusion and citing case law that provided “the sealing from public scrutiny of FLSA agreements between employees and employers would thwart the public’s independent interest in assuring that employees’ wages are fair and thus do not endanger ‘the national health and well-being.’” Additionally, the court stated that due to the risks of continued litigation and the owner’s potential inability to pay a judgment even if the drivers were successful at trial, the compromise of the drivers’ claims was reasonable. Fogg v. Over the Mountain Sedan, LLC, No. 16-cv-699 (N.D. Ala. Nov. 17, 2017).

MOVING COMPANY TO PAY $1.48 MILLION IN SETTLEMENT WITH ITS DRIVERS IN IC MISCLASSIFICATION CASE.  Truck and moving drivers for Atlas Van Lines, Inc. have sought preliminary approval of a $1.48 million settlement in California case alleging IC misclassification. This case was originally filed on October 25, 2016 in the Superior Court of California, County of Los Angeles; it was later removed to federal court. The complaint  alleged that in misclassifying the drivers, Atlas violated California law by failing to provide meal and rest breaks, failing to pay minimum and overtime wages, failing to pay all wages due at separation, failing to reimburse business expenses, violating California’s Unfair Competition Act, and failing to furnish timely and accurate wage statements. The settlement agreement provides that each of the approximately 494 class members will receive about $2,000; up to 30% ($440,000) will be allocated to attorneys’ fees; $25,000 for claims under the California’s Private Attorneys General Act; $11,000 towards settlement administration; and $15,000 for the class representative’s service award.  Leitzbach v. Atlas Van Lines, Inc., No. 16-cv-08790 (C.D. Cal. Nov. 27, 2017).

CHEVRON SUED FOR IC MISCLASSIFICATION OF SAFETY CONSULTANTS IN CALIFORNIA. Safety consultants have commenced a collective and class action in California federal court against Chevron U.S.A. Inc., alleging wage and hour violations under the FLSA and California Labor Code due to alleged independent contractor misclassification. According to the complaint, Chevron not only engages in the business of oil and natural gas exploration and production, it also provides safety personnel that offer safety services to operators and other oil field services companies. The safety consultants were allegedly responsible for implementing safety procedures, monitoring well-site safety and testing, and assisting in incident investigation and reporting. In support of their IC misclassification claim, the safety consultants alleged that Chevron determines the consultants’ schedules of work and rates of pay; provides all essential equipment and tools for the consultants; retains them for extended periods of time; has the authority to hire, discipline, and fire the safety consultants; directs their work; and controls all meaningful aspects of the consultants’ services to ensure that Chevron’s strategic objectives are fulfilled. No response has been filed yet by Chevron, who is expected to deny the allegations.  Goodman v. Chevron U.S.A., Inc., No. 17-6649 (N.D. Cal. Nov. 17, 2017).

Regulatory and Administrative (1 case)

NLRB FINDS HOME DELIVERY DRIVERS/HAULERS TO BE IC’S.

The NLRB has found that drivers/haulers who make deliveries to customers of home improvement retailer, Menard Inc., are independent contractors and not employees. The complaint alleged that Menard violated Section 8(a)(1) of the National Labor Relations Act by misclassifying the drivers as independent contractors rather than employees and by maintaining delivery service agreements that contain a mandatory arbitration clause that delivery drivers would reasonably understand as prohibiting them from filing class actions against Menard in any legal or arbitral forum, and from filing unfair labor practice charges with the Board. In determining whether the drivers were independent contractors or employees, the NLRB evaluated a non-exhaustive list of common law factors and also considered whether the driver had actual entrepreneurial opportunity for gain or loss, e.g. whether the drivers can work for other clients, can hire their own employees, and have a proprietary interest in the work. In finding that the drivers were ICs, the NLRB concluded that the drivers had more control, on balance, than did Menard over the details of the work (particularly where the drivers are free to work for other clients, determine what equipment to use, hire and train their own staff, select and purchase their own trucks, decide upon the routes they will use to make deliveries, and choose how to perform the hauling services), the drivers were engaged in the distinct business of providing hauling and delivery services while Menard is in the business of retail sales of home improvement merchandise; the drivers supplied the instrumentalities needed to do the work; the contracts entered between Menard and the drivers were for relatively short periods of time; the drivers were paid “by the job;” the parties believed they were creating an independent contractor relationship; and there was significant entrepreneurial opportunity for gain or loss. Only one factor, the level of skill required to provide the services, weighed in favor of employee status. The NLRB also found that Menard did not violate Section 8(a)(1) by maintaining a mandatory arbitration clause in its delivery service agreements with the drivers because as independent contractors, the drivers do not fall within the protections of the Act. Menard Inc., No. 18-CA-181821 (NLRB Nov. 17, 2017).

By Richard Reibstein

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